Tariffs Versus VAT in the presence of heterogeneous firms and an informal sector

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dc.contributor.author Davies, Ronald B.
dc.contributor.author Paz, Lourenço
dc.date.accessioned 2010-12-09T15:15:50Z
dc.date.available 2010-12-09T15:15:50Z
dc.date.issued 2010-04-05
dc.identifier.uri http://hdl.handle.net/10197/2641
dc.description.abstract The debate over the use of tariffs or value added taxes in developing countries has focused on the difficulty of collecting VAT from the informal sector of the economy. This paper contributes by considering this issue with heterogeneous firms and endogenous entry. This yields two new results. First, a cut in the tariff in and of itself can reduce the size of the informal sector. Second, the imposition of a VAT need not increase the number of informal firms. In fact, for many parameterizations of the model, higher VAT reduces informality. Despite this, whether a revenue neutral shift from tariffs to VAT increases or decreases welfare depends on the parametrization. Therefore while this move may be welfare improving in some cases, it is not a one-size fits all policy. en
dc.description.sponsorship Not applicable en
dc.format.extent 195679 bytes
dc.format.mimetype application/pdf
dc.language.iso en en
dc.publisher University College Dublin. School of Economics en
dc.relation.ispartofseries UCD Centre for Economic Research Working Paper Series en
dc.relation.ispartofseries WP 10 08 en
dc.relation.requires Economists Online Collection en
dc.subject.lcsh Tariff en
dc.subject.lcsh Value-added tax en
dc.subject.lcsh Informal sector (Economics)--Taxation en
dc.title Tariffs Versus VAT in the presence of heterogeneous firms and an informal sector en
dc.type Working Paper en
dc.internal.availability Full text available en
dc.internal.webversions Publisher's version en
dc.internal.webversions http://www.ucd.ie/t4cms/wp10_08.pdf en
dc.status Not peer reviewed en
dc.neeo.contributor Davies|Ronald B.|aut| en
dc.neeo.contributor Paz|Lourenço|aut| en


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